Mayoral Candidate Jefferson Smith, participants in Occupy Portland, Todd Olson with Oregon Move Our Money testifying under Citizen Communications at Council on 11/16/11, and multiple community groups and individuals are questioning government investments in large banks and urging the City of Portland to change its banking practices. A while ago, I asked the Office of Management and Finance to provide information to me on what money we, the citizens of Portland via our City government, invest in which banks.

This is in response to your question concerning investing City funds in Credit Unions and local banks. Investments are made in accordance with the City's Investment Policy as well as Oregon Revised Statutes. The objectives of the portfolio are to preserve the principal and serve the liquidity needs of the City while generating the maximum return within those confines. In order to achieve that objective, the City invests in a diversified portfolio of conservative investments, most heavily in US Securities or US Backed Securities. While the vast majority of City funds are invested in federal securities, there is an element of our portfolio that invests money in banks. As of October 31st, 2011 the City maintained the following bank balances:

Well Fargo (Checking and Investment)

$ 22,166,000

Albina Community Bank

$250,000

Key Bank

$94,000

Umpqua Bank

$29,990,000

US Bank

$318,000

Total

$52,818,000

**********

So the majority of the City's money, nearly $30 million, IS invested in a local bank, Umpqua. A small amount is in Key Bank and US Bank - staff are researching those line items to tell me what they represent. The amount in Albina is the maximum currently allowed by law, and was directed there during my service on the Council under the direction of Mayor Adams.

The contract with Wells Fargo to hold the City's checking account was passed in a public hearing before City Council on March , 2009. A cross-bureau committee including an outside party unanimously selected Wells Fargo, which has held the City's account for 48 years. Wells Fargo reduced the cost to the City in 2005 and again in 2009.

From the transcript of that hearing:

David Thurman, City Treasurer:Members of council. For the record, I’m David Thurman, City Treasurer. The items will authorize contracts with Wells Fargo merchant services as well as banking. For general banking and merchant bankcard services which encompasses a wide variety of services. These contracts will be authorized through March 2013, and there's a culmination of a R.F.P. [Request For Proposal] Process conducted last year, in which we received actually four proposals. They were reviewed by an evaluation committee and interviews conducted.

Adams: Which four?

Thurman: We received a proposal from Wells Fargo, Bank of America, Key Bank and U.S. Bank. As I said, the proposals were reviewed. We had interviews and Wells Fargo was selected. As they were the providing that was really able to provide us the best technical solution at the best price. The proposed contracts will be approximately $22,000 and $28,000 a month. And that encompasses the banking services as well the processing costs that go to the bank. In addition to those costs, there are the pass-through costs for credit card services that go to Visa and MasterCard. Those range between 1% and 3% on average city wide but those costs are consistent no matter which bank you happen to choose. Those -- both of those segments of costs vary depending on the city's monthly transaction activity. High peak times or lower peak times. So it’s safe to say, these are services that are basically utilized by every bureau throughout the city and critical to the ongoing business operations. With that, I’d be happy to take any questions.

Adams: Is there a reason why more of the locally owned banks didn't respond to the R.F.P.?

Thurman: Because the size and volume of the city account. We run in excess of about 50,000 to 60,000 checks a month. It's a high-volume, high-intensity account. And quite frankly, our accounts in some cases are bigger than the banks that would be proposing. So it's an issue in order to meet the qualifications, you need to be a fairly large, robust bank.

Adams: Conversation from council? Thank you very much. These are emergency items. does anyone to testify on items 312 or 313? All right. Karla, please call the roll.

Fritz: I appreciate the question about the local banks and the due diligence and also recognize Wells Fargo is reducing their pricing, so it looks like the negotiations went well. Aye. Thank you.

Fish: Aye.

Saltzman: Good work. Aye.

Leonard: Aye.

Adams: This gives me an opportunity to publicly thank you for your great ongoing work on our behalf. Thank you. Aye. [gavel pounded] 313.

**********

This contract with Wells Fargo is up for renewal and potential reconsideration in March 2013. I hope citizens will participate in the discussion at that time. This year, Mayor Adams and I, and likely other members of Council, are interested in pursuing a Responsible Banking Policy similar to that recently passed in Seattle. Passing a version of this policy would give direction when the banking contract is re-considered.

Updated 12/17/11 - See this informative article by Brent Hunsberger in the Oregonian

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Posted by: Bill Michtom - November 22, 2011 12:44 PM

From Seattle's Responsible Banking Policy:

The City will review its banking and investment practices to ensure that public funds are invested in responsible financial institutions that support our community. The Council may also consider future legislation to promote responsible banking and provide an incentive for banking institutions to invest more in our City, particularly with regard to stabilizing the housing market and supporting the creation of new businesses. This review should include evaluating Citypolicies on responsible depositing and management of City funds. http://bit.ly/t8FY28

Posted by: Bill Michtom - November 22, 2011 01:12 PM

"The amount in Albina is the maximum currently allowed by law ..."

Could you explain (or refer us to) the law that restricts what is banked with Albina?

Thank you.

Posted by: Todd Olson - November 23, 2011 03:35 PM

Bill,Take a look at the below link. It will give you all the info you want.

http://www.ost.state.or.us/Services/PFCP/Overview.asp

Currently, municipalities can only deposit up to the maximum amount of federal insurance, which for most small banks and credit unions is 250k. If cities want to deposit more they are required to post collateral to protect the deposited funds.

We will soon be working with Comm. Fritz and Mayor Adams to begin drafting a Responsible Banking Policy. My understanding is that right now the city chooses the banks it does business with through a competitive bid process.It bases its decision primarily upon cost to the city. We hope to establish policies where other factors are considered as well, such as foreclosure practices, local small business lending, etc.

Todd, is this the difference between insured unlimited accounts and a "regular account?

"On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution. A noninterest-bearing transaction account is a deposit account where interest is neither accrued nor paid; depositors are permitted to make an unlimited number of transfers and withdrawals; and the bank does not reserve the right to require advance notice of an intended withdrawal." http://1.usa.gov/uHPNTt

Posted by: Todd Olson - November 28, 2011 02:59 PM

Bill,

While I am certainly no expert on the Dodd-Frank Wall Street Reform & Cons. Protection Act, the above rule does appear to permit municipalities to deposit more than 250k only if the account is setup as a special "unlimited" account. This kind of account would not benefit a local bank or credit union as they would not be able invest the money, nor would a municipality be able to earn interest. I think it's meant as a way for businesses or others to safely park large amounts of money until it is invested. See the below FDIC link for more specific information.